Lippo Bank Agrees to Changes After New Federal Sanctions
Lippo Bank of California has agreed to restructure its banking and lending practices, including reducing its “substandard” assets and coming up with additional capital, after being sanctioned by banking regulators for the third time in seven years, the bank announced late Thursday.
The problem-plagued Los Angeles-based bank entered into an agreement with the Federal Deposit Insurance Corp. on March 13 to settle concerns raised in an FDIC “cease and desist” order that takes effect March 31.
James Per Lee, president of Lippo Bank, said he could not discuss the specifics of the FDIC order because it had not been officially released. The FDIC could not be reached late Thursday for comment.
But Per Lee said the bank has already begun making the changes required by the federal banking regulators, who had raised concerns about the bank’s “real estate loan portfolio and certain management practices.”
Those steps include raising the bank’s shareholder capital to 7.5% of its asset base of $100 million, reducing its nonperforming loans, developing more stringent loan underwriting standards and bringing in the Secura Group of Washington to evaluate the management.
The Secura Group, which is headed by former FDIC chairman William M. Issac, is known for stepping in to oversee troubled banks. Lippo Bank received its first “cease and desist” order from the FDIC in 1990; it was lifted in 1994. The second was issued in late 1994 and withdrawn a year ago.
Lippo Bank has been in the news lately because it is owned by James Riady, an Indonesian financier whose family has been a prominent figure in the Democratic campaign fund-raising controversy.
Bert Ely, a banking consultant based in Alexandria, Va., said on Thursday that the FDIC order was not a surprise. He questioned where the bank will get the additional capital--about $5 million--to meet the government’s requirements.
Ely said the Riady family has already injected $20 million into the bank since purchasing it in 1987. He said it will be tough to find outside capital, given the bank’s poor performance. Lippo Bank lost $1.1 million for the third quarter of 1996, compared with a loss during the previous quarter of $77,000, according to public records.
Another possibility would be to find a buyer for the bank, which has offices in Los Angeles, Westminster, San Jose and San Francisco.
“But it’s kind of radioactive, not just because of its financial problems but all these political problems,” Ely said.
